India's Services Exports Dominated by Two Players: What it Means for The Economy?

India is preparing for a major shift in its export trends by end of this decade. Services exports are projected to overtake merchandise exports by 2030, primarily driven by only two major players - Software and IT services and Other Business Services (OBS), according to a Global Trade Research Initiative (GTRI) report published on Wednesday.

The report noted that between the fiscal year 2019 and 2024, India’s merchandise exports grew at a compound annual growth rate (CAGR) of 5.8 per cent. On the other hand, services exports surged ahead at a CAGR of 10.5 per cent. If the trend continues, the by FY30, services exports are expected to reach $618.21 billion against the merchandise exports at $613.04 billion.

Both Software and IT services and OBS accounted for 86.4 per cent of total exports earning in fiscal year 2024. To put that in contrast, these two sectors make up only 36 per cent of global services export. Meanwhile, the country's contribution is only 1.9 per cent in services that represent 64 per cent of global services trade.

Data highlight that key areas where India's share is particularly low are transport and travel at 2.4 per cent, insurance and pension services at 1.38 per cent, maintenance and repair Services at 0.24 per cent, financial services at 1.30 per cent, and intellectual property-related charges at 0.23 per cent.

How is India Performing?

Software and IT services are grouped under the broader category of telecommunications, computer, and information services. They altogether contributed $190.7 billion to India’s exports in FY24. This segment contributes 56.2 per cent of the nation’s total services exports, with around 80 per cent of these delivered digitally.  

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On the other hand, OBS including sectors like legal, accounting, tax consultancy, management consulting, and market research, generated $102.8 billion in FY24, with a share of 33.2 per cent in total services exports. As demand for specialised services and the integration of services into manufacturing are rising globally, it is predicted that OBS will soon take over Software and IT services.

In 2023, the global OBS trade accounted for 25.4 per cent of world services exports with $1.8 trillion as compared to 10.7 per cent share of software and IT sector with $762 billion.

While emerging technologies like gen AI, machine learning, and the Internet of Things are expanding opportunities for Indian firms in software and IT sector, global trend also portray a bright future for the OBS.

Way Forward for India's Exports

According to the report, India's dependency on the United States for IT exports makes it vulnerable to policy shifts in the US. India's 70 per cent of the IT exports revenue depends on the US.  President-elect Donald Trump’s critical stance on outsourcing and restrictive H-1B visa policies further escalate these risks. Hence India needs to focus on more diversified export channels.

India's OBS exports also require rigorous promotion and as it still remains underutilized by many Indian firms. A five-point action plan consisting regulatory reviews to align domestic rules with global best practices, establishing sector-specific associations to connect buyers and sellers, educating professionals about opportunities, upskilling in niche areas, and strengthening infrastructure for seamless service delivery can certainly drive this growth.

While India needs to actively encourage its high-performing exports, it also needs to push the underperforming sectors to increase their shares. A strategic diversification will reduce the dependency on a particular nation or sector.

The report suggested that strengthening India’s manufacturing sector can create complementary demand for engineering, design, AI, IoT, and robotics services, further boosting exports.

It also emphasised on regulating the dominance of U.S. tech giants like Google, Facebook, Amazon, and OpenAI is essential to foster the growth of homegrown digital enterprises.